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3 years ago

High-Low Method

Business

1 answer:

frozen [14]3 years ago

6 0

Answer:

Requirement 1

High Point = March

Low Point = January

Requirement 2

Variable rate for tanning $0.41 per tanning appointment

Fixed cost per month $1,457

Requirement 3

Total Cost = $1,457 + $0.41 × Activity Level

Requirement 4

Total predicted cost for September $ 2,482

Total fixed cost for September $1,457

Total predicted variable cost for September $1,025

Explanation:

Requirement 1

High Point = March

Low Point = January

Requirement 2

Variable Cost = Difference in Overhead Cost (High - Low)/ Difference in Activity (High - Low)

= $2,810 - $1,744 / 3,300 - 700

= $1,066/ 2,600

= $0.41

Fixed Cost Component = Total Overhead Cost - Variable Cost × Selected Activity.

Lets Select, January 700 $1,744

Fixed Cost Component = Total Overhead Cost - Variable Cost × Selected Activity.

= $1,744 - $0.41 × 700

= $1,457

Requirement 3

Cost formula for tanning services

Total Cost = Fixed Cost + Variable Cost

thus,

Total Cost = $1,457 + $0.41 × Activity Level

Requirement 4

Total Cost = $1,457 + $0.41 × Activity Level

= $1,457 + $0.41 × 2,500

= $ 2,482

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